Under normal circumstances, a stock certificate entitles you to a claim on the issuing corporation for as long as the issuer is in business. However, under specific conditions, you may lose your claim associated with the stock if you fail to act on time. In addition, derivative instruments such as stock options whose value depends on a particular stock have explicit expiration dates.
Stocks are issued in a variety of flavors, with common and preferred shares being the most frequently used types. All types of stock in a company entitle you to a portion of the issuing corporation's earnings, as well as part of the proceeds, if the company is dissolved. However, it is never a good idea to leave your stock holdings unattended for long periods of time. As a rule of thumb, you should check the price, read the shareholder report and scan the news concerning the company at least once a year. While stocks do not expire, they can cease to exist in their original form under a number of conditions.
Shares that change hands on a public stock market, such as the New York Stock Exchange, are referred to as listed stocks. These exchanges have listing requirements such as lower limits to the total size of the issuing corporation's market value. If the business fails to meet these requirements, the stock can be removed from the exchange, or delisted. Should this happen, your shares will still continue to exist, but you can no longer sell them in the stock exchange. If you wish to sell such shares, you must locate investors on your own in what is called a private trade.
Bankrupt corporations will either be dissolved or get reorganized. Dissolution means the sale of assets and the disappearance of the corporation. Shareholders will only receive cash in a dissolution if money is left over after creditors have been paid in full. A reorganization, on the other hand, means that a bankruptcy court has given the business a chance to get its act together and allowed the business to withhold payment to creditors for a limited period. In such a case, shareholders are usually given new shares worth less than the old ones. In extreme cases, shareholders may get nothing at all and common shares disappear.
Investors should be careful not to confuse stock options with stock. An option allows the investor to lock in a sale or purchase price for a security. For example, a typical option may allow you to purchase 1,000 shares of a company for $550 a share until July 26. Holding such an option gives you the right, but not the obligation, to purchase company shares at the specified prices. Stock options always carry an expiration date. If you decide not to purchase the company's shares at the predetermined price, you would take no action at all by July 26, in which case you will forever lose your right entitled by the option.
Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.